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Stadler picks up speed

The Thurgau-based railway stock manufacturer is bringing in orders left and right and just triumphantly went public on the Swiss exchange. After conquering the world with its “Flirt” regional train, Stadler is now turning to high-speed trains.

The figures are almost unbelievable: in 2004, Stadler Rail had 1,100 employees and generated revenue of 556 million Swiss francs. Today, it makes 2 billion in revenue and has nearly 8,900 employees. While the railway industry grows year over year (+2.7% yearly by 2023 according to the European Rail Industry), the Thurgau-based railway stock manufacturer has grown at a higher than average rate for the past 15 years and just had a successful IPO on the Swiss exchange in April. And this is just the beginning. The executive team is aiming for four billion in revenue by 2020.

The Bussnang-based group did recently exceed that goal. In late 2018, its orders reached 13.2 billion Swiss francs. And it already has a significant amount of orders this year. In March, it signed its largest contract ever for underground metros: 127 two-car trains for the Atlanta subway in the United States, for a sales price of $600 million. Minsk, Barcelona, Berlin, Glasgow and Liverpool also ordered underground trains from Stadler.

But the company’s core business is still heavy rail. Its current success is largely due to its “Flirt” train. Sold as early as 2002 for regional routes and 2008 for intercity travel, this train – whose fastest version can reach 200 km/hr – is Stadler’s moneymaker. It built Flirt trains for 18 countries, mainly in Europe, but also in the United States, Canada and Algeria; “from Africa to the Arctic Circle,” says Stadler on its site. The “Kiss”, a double-decker variation, is also a top seller.

CUSTOMISABLE TRAINS

For Vincent Ducrot, head of Transports publics fribourgeois (TPF) and former head of the Major Lines and Travellers departments at Swiss Federal Railways (SBB), the Flirt is a perfect example of one of Stadler’s strengths: the ability to produce many models of the same basic train that can then be customised. “The Flirt is designed around a single platform and then adapted based on client needs, similar to automobiles,” explained the rail market expert. While effectively industrialising is difficult in this industry due to country-specific requirements, Stadler’s structure makes it possible to do just that.

“The organisation of the entire company is based on its Bussnang location,” said Ducrot. “That’s where the expertise is concentrated.” And even though Stadler now has factories and assembly sites in Hungary and Belarus, its much larger competitors Alstom, Bombardier and Siemens are scattered even more, according to Ducrot: “Stadler builds trains, while other large groups assemble parts from all over the world”. Some companies even need to have experts travel between their locations to make up for the lack of local expertise.

Furthermore, Stadler’s ability to offer customisable trains means it can access markets that its giant rivals cannot. “Thanks to its relatively small size, the company has maintained its flexibility and agility,” said Ducrot. For example, Stadler is the only manufacturer able to build narrow gauge (or metric) trains, which are used by TPF and Rhaetian Railway. “When you put out a call for bids for this type of train, only Stadler responds.” Furthermore, the Thurgau company stands out for the quality of its products and its timeliness. While it doesn’t have the most robust catalogue, “what it delivers is very well-made and on time”.

THE “CONTRACT OF THE CENTURY” AT BOMBARDIER

Editor-in-chief of Schweitzer Eisenbahn-Revue, Walter von Andrian confirmed that Stadler has a virtual monopoly on the narrow gauge train market. “That means that in some ways it can set the prices.” However, Stadler missed the “contract of the century” for double-decker high-speed trains for Swiss Federal Railways in 2010; it went to Bombardier instead. According to Ducrot, one of the people who signed the contract, Stadler offered a train with a motorisation system concentrated at the ends of the cars rather than spread throughout the train, and this was one of the primary reasons Stadler lost the contract. This technical decision is a disadvantage because it reduces the number of seats on the train.

SBB ordered 59 duplex trains for 1.9 billion Swiss francs from Bombardier, with an option to purchase 100 additional compositions. Given the many delays and difficulties with the Canadian manufacturer, there is still hope that SBB could go back to the market for the additional trains. But von Andrian said that Stadler has never built a double-decker train capable of reaching 200 km/hr with a car incline system when turning or a roll compensation (ed. note: this neutralises the effect of centrifugal force and allows the train to go faster), “which is an incredible technical challenge”. Furthermore, he doesn’t think that Stadler will be able to deliver on time.

But the company, led by Thomas Ahlburg since 1 January 2018, isn’t discouraged. While Bombardier struggled to fulfil its complicated order, Stadler was successful five years ago, providing SBB with new high-speed trains for the underground Gotthard Tunnel (which in this case are only one level). The deal, worth 1 billion Swiss francs, was for 29 cars and an additional 92 if needed. Capable of reaching 250 km/hr, the “Smile” and “Giruno” trains will be gradually introduced on the Basel - Lugano - Chiasso and Zurich - Lugano - Chiasso routes starting in December. This model was also developed based on the Flirt.

“Stadler will have to manage moving from a family structure to a public company”

Vincent Ducrot, director of Transports publics fribourgeois

“This project is completely strategic,” said Ducrot. “In Europe, many highspeed trains are reaching the end of their lifespan and will have to be renewed, but very few companies are able to make them.” Von Andrian is more sceptical: “Demand is significantly lower than for regional traffic. To be truly competitive, these trains need to reach speeds of 320 km/hr (such as Siemens’ ICE trains in Germany and Alstom’s TGV trains in France), which isn’t possible due to the weight of the train.” But Ducrot believes it is feasible with a few adaptations.

ULTRA-CONCENTRATED MARKET

Still, in order to compete, Stadler must lower its prices for the standard gauge train market, according to two experts. “Stadler builds beautiful, high-quality trains, but they are expensive,” said the head of TPF.

“After a race for complexity in recent years, transport companies are now aiming to produce simpler trains at a lower cost that can be easily maintained.” While Stadler’s small size is an advantage when it comes to flexibility, it limits the possibility for economies of scale. This is in the context of an ultra-concentrated market: in the west, Bombardier, Siemens and Alstom make for a powerful triumvirate. If it wasn’t for the veto from Brussels, Siemens and Alstom would have merged.

Another titan is rising in the east: China Railroad Rolling Stock Corporation (CRRC), created in 2015 from a merger of two conglomerates controlled by Beijing. It’s the global leader with its eye on Europe. But Ducrot believes that European quality standards are too high for a new player to come on the market overnight. Furthermore, railroad companies follow national preference to a certain extent. That said, Japan’s Hitachi is well-positioned, with incredibly functional trains that are perfectly in line with new transport standards.

To reduce costs, von Andrian believes that Stadler has no other choice but to move even more production internationally, especially for its standard gauge trains, as it has already started to do. “Costs are simply too high in Switzerland for Stadler to remain competitive.” He said that even in Switzerland, Stadler locations are never far from the border, close to foreign workers...

To continue its growth, Stadler should try to preserve the advantages that have made it successful so far, while simultaneously adapting to the fact that it is now one of the industry’s main players. What’s more, the CEO is no longer its historical leader. Former UDC national councillor Peter Spuhler, who purchased the firm in 1989, is now “only” the president of the executive board as of last year. Vincent Ducrot sums it up nicely: “Stadler will have to manage moving from a family structure to a public company.”

A SUCCESSFUL IPO

Stadler Rail successfully went public on the Swiss stock exchange on 12 April. The issue price was set at 38 Swiss francs, on the high end of the initial indicative range (between 33 and 41 francs). At the end of the first day on the exchange, the share price exceeded 43 francs. It is currently priced at around 45 francs and the company’s capitalisation exceeds 4.3 billion francs.

“An IPO is a natural step in the development of the company and it will further reinforce its visibility in global markets,” said Stadler when it announced the IPO on the SIX Swiss Exchange on 19 March. Going public will allow the company to invest in new technologies, as well as the tram, metro and locomotive sectors in particular. The percentage owned by the president of the executive board, Peter Spuhler, went from 80% to 40%.